Annual Meeting

Rapid Growth, Institutional Evolution and Corporate Governance in Asia

Wolfgang Kasper

Considering two differing styles of corporate governance-reliance on black-letter law and central top-down control, and reliance on competition-enhancing rules (institutions)-the second style recommends itself in countries that have limited administrative and judicial expertise and undergo rapid and complex structural changes.

Various stages in the rapid industrialization of East Asian countries will be traced, showing that the quality of institutions matters little in the early stages after take-off. However growing economic maturity and higher incomes require universal institutions of governance, as well as reliable enforcement of rules governing business, if local wages, tax revenues, and other incomes are to not stagnate. The slowdown of the more advanced new industrial countries in Asia and the "financial crisis" are traced to a neglect of institutional development, and frequently to rampant crony capitalism. This threatens to frustrate ongoing economic development, in particular of modern, competitive, and innovative service industries.

A simple index of institutional quality, based on surveys of experienced international business leaders, will rate 15 Asian countries with the aid of "report cards" that highlight notable institutional deficiencies. This is done in the knowledge that while institutional reform of corporate governance is extremely difficult, the use of analytical insight to drive reform is nevertheless preferable to reacting to traumatic and costly "accidents" (as occurred in many of the old industrial countries).

Considering two differing styles of corporate governance-reliance on black-letter law and central top-down control, and reliance on competition-enhancing rules (institutions)-the second style recommends itself in countries that have limited administrative and judicial expertise and undergo rapid and complex structural changes.

Various stages in the rapid industrialization of East Asian countries will be traced, showing that the quality of institutions matters little in the early stages after take-off. However growing economic maturity and higher incomes require universal institutions of governance, as well as reliable enforcement of rules governing business, if local wages, tax revenues, and other incomes are to not stagnate. The slowdown of the more advanced new industrial countries in Asia and the "financial crisis" are traced to a neglect of institutional development, and frequently to rampant crony capitalism. This threatens to frustrate ongoing economic development, in particular of modern, competitive, and innovative service industries.